Dairy reform measure passes first hurdle in US Senate

WASHINGTON, May 2, 2012 -The most ambitious effort to
restructure dairy programs in a generation overcame its first hurdle last week
when the Senate Agriculture Committee approved a farm bill that incorporates
the key features of a National Milk Producers Federation (NMPF) proposal.

But the relative ease
of passage disguises a continuing dispute over the “market stabilization”
mechanism designed to deter farmers from increasing milk production when
supplies are excessive and margins low.

Sen. Michael Bennet, D-Colo., whose dairy farmers would like
to increase production for a big new Leprino Foods cheese plant, proposed –but
withdrew ‑ an amendment that would have scrapped the penalty for increased
production when farm margins are seriously depressed. However, the amendment
would have retained a stand-alone milk margin insurance plan.

Bennet’s measure is likely to be raised again when the full
Senate takes up the bill. But the NMPF said that the amendment would cost dairy
farmers an additional $429 million in premium costs for margin insurance over
the next five years.

Whether it’s called “market stabilization” or “supply
management,” the mechanism was at the center of a House Agriculture subcommittee
hearing Thursday afternoon, even as the Senate committee was voting on its farm
bill. By dampening production at times, the provision would “harm a growing dairy export business and
will discourage investment into more domestic processing facilities,” said
CEO Jon Davis of Davisco Foods International, LeSueur, Minn.

He said his family-owned business has delayed expansion,
adding, “Most if not all of the next wave of dairy processing investment is on
hold. We simply can't afford to commit capital when we don’t know if we will
have the milk supply to operate those potential new investments.”

He argued that margin insurance “without imposing a supply
management program on the dairy industry . . . could easily be offered within
the limits of the dairy [budget] baseline.”

But Rep. Collin C. Peterson, D-Minn., who proposed the
NMPF-backed plan in a bill last year, argued that the mechanism was essential
to meet budgetary constraints.

“I think it would
cost us $250 million if we didn’t have market stabilization,” he said. “If you
take stabilization out, you’re not going to have a bill.”

The Congressional Budget Office has estimated that the
Senate version would be $153 million less costly over the next five years,
compared with existing dairy programs, or $71 million in 10 years.

Peterson also challenged assertions that the bill would harm
exports.

“What mystifies me about IDFA,” he said of the International
Dairy Foods Association, the principal opponent of his proposal, “is that we
have made this more market-oriented, more export-oriented; 75 to 80 percent of
what they have been asking for is in this bill.”

Scott Brown, a University of Missouri agricultural economist
who regularly advises Congress from his post at the Food and Agricultural
Policy Research Institute, gave the subcommittee an analysis that seemed to
back up Peterson.

The stabilization plan “helps from a government outlay
standpoint,” he said. “That's the important feature that’s brought market
stabilization.” Without it, he said, “you can imagine very low margin outcomes
creating very large outlays. We don’t expect margin protection to trigger very
often, so the effect on prices would be very small.”

NMPF President Jerry Kozak used the hearing to challenge the
term “supply management” as “a total misnomer.” He insisted, “This is not a
Canadian-style quota system. It does not insulate our farmers from the world.”

The proposal was defended by several Democrats, but IDFA’s
opposition found sympathy from Republicans in the House hearing, especially
those from the Southeast, and Rep. David Scott, D-Ga., who once chaired the
dairy subcommittee. “I am particularly concerned that the processors, who are
operating on very thin margins,” would increase prices if the “market
stabilization” feature were to boost farm prices, he said.

Dairy farmer Patrick “Joe” Wright of Avon Park, Fla., may
have captured the sentiment of many skeptics. “I’m really surprised there is
that much support for this, but there genuinely, really is,” he said. He
proposed an exemption for milk-deficit areas but added, “I believe enough
producers out west will sign up that it will moderate the volatility and the
entire industry would benefit.”

In the Senate, Bennet’s skepticism about “supply management”
was echoed by Sen. Kirsten Gillibrand, D-N.Y.

“Now, many of us share this concern about capping production
because we want to export our dairy, so we don’t love capping production,” she
said. Gillibrand also objected to the cost of margin insurance, especially for
small-scale farms. “I’m very worried about more small farms going out of
business,” she said. “Once you
consolidate an industry, the next step is outsourcing. I don’t ever want to
have to buy my milk from China.”

The Senate committee bill includes an amendment by Sens.
Mike Johanns, R-Neb., and Robert Casey, D-Pa., calling on USDA’s chief
economist to report by December 2016 on how the stabilization feature affected
producers, processors and customers; the impact it had on farm structure and
regional distribution of dairy farms, and whether it affected the competitive
position of the U.S. dairy industry in international markets.

This week’s guest on Open Mic is Dr. Jayson Lusk, Distinguished Professor and Head of the Agriculture Economics Department at Purdue University. With heightened debate on food and farm policy surrounding the development of a new farm bill, Dr. Lusk offers challenging insight about the relationship between political persuasion and food, work requirements for SNAP recipients and evolving preferences in meat consumption.

The House Agriculture Committee was set to mark up a new farm bill next week, but Democratic objections over planned nutrition changes have caused a delay. Agri-Pulse's Phil Brasher and Spencer Chase have more on that and a fix to the GOP tax bill in this week's video.

The world of agriculture extends beyond what’s growing in your field or living in your barn, and here at Agri-Pulse, we understand that. We make it our duty to inform you of the most up-to-date agricultural and rural policy decisions being made in Washington D.C. and examine how they will affect you – the farmer, the lobbyist, the government employee, the educator, the consultant and the concerned citizen.